Advertising Law - Jan 29, 2014

by Manatt, Phelps & Phillips, LLP
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In This Issue:

Ivan Wasserman Invited to Speak at FDLI’s Food Week 2014

On February 10-13, 2014, the Food and Drug Law Institute will hold its Food Week 2014 conference, at which food law, regulation and policy stakeholders will convene to discuss global developments and the latest issues involving food advertising, labeling and nutrition and food safety.

Manatt partner Ivan Wasserman will moderate a panel discussion on February 10 titled “Trend Watch: Connecting with the Consumer.” The panelists are Cynthia Harriman (Director of Food and Nutrition Strategies, Oldways/Whole Grains Council) and Brian Levy (President, Pulse Health & Wellness Initiatives).

The conference will be held at the Renaissance Marriott Dupont Circle in Washington, DC. For more information or to register for this event, click here.

Shape Magazine Should “Clearly and Conspicuously” Disclose Branded Content, Says NAD

Keeping a close eye on native advertising, the National Advertising Division recently reviewed an article in Shape magazine that suggested readers could benefit from a Shape-branded product.

The September 2013 issue of Shape magazine featured a new line of products branded with the Shape name. Under the caption “news,” a story called “Water Works” discussed the importance of staying hydrated. It also recommended Shape Water Boosters, a flavored supplement added to water, as an aid to hydration.

“The obvious solution is to stick with water, but about 20 percent of Americans reportedly don’t like the taste. If that sounds like you, check out the new Shape Water Boosters,” the text of the story read. “Just a single squeeze…adds delicious flavor – but not calories – along with a concentrated punch of nutrients that offer some important bonus benefits.”

The NAD determined that the context in which Shape recommended its product “could mislead or confuse consumers to believe that the recommendation is an independent editorial assessment.”

American Media, Inc., Shape’s publisher, argued that since the “sophisticated readership” of the magazine can and does understand the connection between the publication and the products, it was under no further obligation to define the promotion of its product separately as an advertisement. The magazine often features recommendations, the publisher added, and an editor’s note on page 22 of the September issue noted that Shape was promoting its own products.

The NAD said that was not enough.

“Advertising that appears in an editorial context has the potential to mislead or confuse consumers because consumers may attach a different weight or significance to editorial content than to pure advertising content,” the NAD said. “Although consumers reading Shape magazine may be aware that Shape Water Boosters are related to Shape magazine, those same consumers can reasonably attach different weight to recommendations made in an editorial context than recommendations made in an advertising context. Put another way, consumers may reasonably believe that editorial recommendations in Shape magazine are independent of the influence of a sponsoring advertiser.”

The editor’s note was insufficient to alert consumers that the article was an advertisement, the NAD added, because it was not in close proximity to the main claim in the story and could not be read at the same time.

Therefore, Shape should “clearly and conspicuously designate content as advertising when it promotes Shape-branded products,” the NAD concluded.

To read the NAD’s press release about the decision, click here

Why it matters: Like the Federal Trade Commission, the NAD has native advertising on its radar. Last September, the self-regulatory body took its first stab at the issue when it reviewed Qualcomm’s sponsorship of a series of tech-related articles featured on Mashable.com. The NAD noted that such advertising “poses some new challenges” and determined that Qualcomm had properly disclosed itself as the sponsor of the article series. In a second case, the NAD recommended that eSalon, the maker and seller of an at-home hair-color product, modify or discontinue certain social media practices in order “to avoid confusion” for customers. The eSalon decision cautioned advertisers to follow FTC guidance and adhere to the general principle that advertisers “are required to identify a message as advertising when it appears in a context that consumers may reasonably understand to be editorial content.”

Thumbs-Down: Facebook User Sues Over “Like”

Facebook engaged in false advertising by publicizing a user’s “like” for the publication USA Today even though he never gave the newspaper a thumbs-up, a new suit claims.

“Although plaintiff has nothing negative to say about USA Today newspapers, plaintiff is not an avid reader of USA Today, nor does plaintiff endorse the newspaper,” according to the complaint filed by Colorado resident Anthony DiTirro in California federal court.

DiTirro claimed that he has been a Facebook user since 2009 but has never clicked on USA Today’s Facebook page, Web site, or ads featuring the paper and never clicked his “like” button for the publication.

After a friend notified him about his “like,” which appeared in a sponsored ad on the site, DiTirro filed suit, seeking class status for other Facebook users whose likenesses and Facebook profiles have been used “to create a false impression that its customers are promoting a particular company or product without said customer’s knowledge or consent.”

Among other charges, the 10-count complaint alleges the social networking site misappropriated his name and image, violated his right of privacy by placing him in false light, and ran afoul of California’s false advertising law. Seeking injunctive relief as well as actual, statutory, and punitive damages where available, the complaint seeks to certify a nationwide class of Facebook users.

To read the complaint in DiTirro v. Facebook, click here

Why it matters: The social media site has faced prior class action litigation over its sponsored ads, which resulted in a $20 million settlement. That suit, however, was based on allegations that Facebook users’ names and images were used without their consent, not that they didn’t actually “like” the product or service.

Court Strikes FCC’s Net Neutrality Rules

In the latest battle of the war over net neutrality, the D.C. Circuit Court of Appeals tossed the bulk of the Federal Communications Commission’s rules.

In 2010, the FCC promulgated an order, In re Preserving the Open Internet, colloquially known as the “net neutrality” rules. Specifically, the order imposed disclosure, antidiscrimination, and antiblocking requirements on broadband providers to promote “Internet openness.” The agency was concerned that broadband providers might prevent end-user subscribers from accessing certain providers or degrade the quality of access to certain content providers.

A carrier challenged the regulations after they took effect. In striking down the antidiscrimination and antiblocking provisions, the D.C. Circuit held in a 2-to-1 decision that the FCC had not overstepped its jurisdictional bounds by issuing the order, but said the specific rules imposed by the agency exceeded the scope of its authority.

“The Commission has adequately supported and explained its conclusion that, absent rules such as those set forth in the Open Internet Order, broadband providers represent a threat to Internet openness and could act in ways that would ultimately inhibit the speed and extent of future broadband deployment,” the panel wrote.

However, the Commission violated the Communications Act by treating broadband providers as common carriers. Broadband providers were classified by the FCC in 2002 as an “information” service not subject to common carrier rules (like telephone companies, for example).

“We have little hesitation in concluding that the anti-discrimination obligation imposed on fixed broadband providers has relegated [those providers], pro tanto, to common carrier status,” the court said. “In requiring broadband providers to serve all edge providers without ‘unreasonable discrimination,’ this rule by its very terms compels those providers to hold themselves out ‘to serve the public indiscriminately.’ ”

The court noted that it was “somewhat less clear” whether the antiblocking rules established common carrier obligations, but it found that the rules established a minimum level of service that broadband providers had to furnish to all edge providers without charge. “In requiring that all edge providers receive this minimum level of access for free, these rules would appear on their face to impose per se common carrier obligations with respect to that minimum level of service,” the court wrote.

The D.C. Circuit did uphold the FCC’s disclosure rules, concluding that it did not impose common carrier obligations on broadband providers and was severable from the other rules.

To read the D.C. Circuit’s opinion, click here.

Why it matters: Net neutrality may have taken a serious blow but proponents are already regrouping. FCC Chairman Tom Wheeler issued a statement that the agency is “considering all options,” including an appeal to the U.S. Supreme Court. Sen. Al Franken (D-Minn.) wrote a letter to the agency, requesting that it “act quickly” to “implement new rules that will preserve access to the Internet” as “disastrous” consequences could result from the D.C. Circuit’s opinion. And Sen. Ed Markey (D-Mass.) has also spoken out on the issue, stating his intention to introduce legislation to take the place of the regulations.

FTC, Apple Reach $32.5M Deal Over In-App Purchases

Reflecting the agency’s stated interest in the mobile ecosystem, the Federal Trade Commission announced that Apple will pay a minimum of $32.5 million to refund consumers for charges incurred in mobile apps by children making purchases without parental consent.

According to the FTC’s complaint, users were presented with a screen requiring a password but were not informed they were making an in-app purchase. In addition, once the password was entered, a 15-minute window existed to make more purchases without having to reenter the password to finalize the purchase.

Failing to inform account holders of the window constituted an unfair and deceptive practice in violation of Section 5 of the Federal Trade Commission Act, the agency said. Apple also labeled apps as “FREE” in its App Store, even though the apps offered in-app purchases, a fact that was only disclosed in small print on a separate information page, the complaint alleged.

Some children managed to rack up hundreds of dollars of charges – which ranged from 99 cents to $99.99 for virtual items or currency in apps such as Tiny Zoo Friends and Dragon Story. One mother complained to the agency that her daughter spent $2,600 in a single app without her knowledge or consent. Apple received “at least tens of thousands” of complaints about unauthorized in-app purchases by children totaling millions of dollars, the FTC said.

Pursuant to the proposed settlement, Apple will pay consumers full refunds for either accidental or unauthorized in-app purchases made by children. The company promised to give notice of the availability of the refunds and pay them promptly. Apple must pay a minimum of $32.5 million in refunds; if that amount is not reached 12 months after the settlement becomes final, the FTC will receive the balance.

Apple also agreed to change its billing practices. As of March 31, 2014, the company said it will ensure that express, informed consent is obtained prior to charges for in-app purchases and will provide an option to withdraw consent for future purchases at any time.

Public comment on the deal is open until February 14. The vote to approve the proposed settlement was 3 to 1, with Commissioner Joshua Wright dissenting. “The Commission, under the rubric of ‘unfair acts and practices,’ substitutes its own judgment for a private firm’s decisions as to how to design its product to satisfy as many users as possible, and requires a company to revamp an otherwise indisputably legitimate business practice.”

Facebook settled a class action suit making similar charges last year. In that case, a California father alleged that his nine-year-old daughter spent $200 on in-app purchases for iPhone games. Class members received either a $5 iTunes gift card (those who no longer had an iTunes account received cash) or an iTunes gift card for the aggregate total of all in-app charges within a single 45-day period.

To read the complaint against Apple and the statement of the Commissioners, click here

Why it matters: The settlement reemphasizes the agency’s concern with mobile issues and indicates its willingness to take action against one of the biggest names in the mobile industry and demand a sizable amount of consumer redress. From staff reports on mobile payments to enforcement actions against mobile cramming and spam texts, the mobile ecosystem remains a major area of interest to the agency.

Noted and Quoted . . . Ad Week Turns to Linda Goldstein Regarding Potential FTC Enforcement for Publication of Deceptive Ads

On January 19, 2014, Ad Week published an article titled “Could the FTC Go After Publishers for Carrying Deceptive Ads? To What Extent is Media Expected to Interpret?” featuring commentary by Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division.

The article focused on deceptive ads for weight-loss products that have been published in several media outlets, such as Parade, ShopHQ and Shape, and explored whether future FTC enforcement actions could target publishers for “disseminating” false advertising.

To read the full article, click here

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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